Evolving Energy

Energy-efficient technologies are lowering overall demand for energy,  reducing the cost of renewable energies, and raising efficiency of extraction techniques, according to McKinsey’s Beyond the Supercycle: How Technology is Reshaping Resources. McKinsey estimates the three trends could save the world economy $900B-$1.6T in 2035 (2/3 reduced demand; 1/3 productivity gains). They see the largest productivity gains in oil & gas but even these could be dwarfed by gains from renewable technologies in a scenario of accelerated adoption. McKinsey’s policy recommendations advise governments to allow these trends to affect energy mix naturally, rather than pegging national budgets and policies to a particular commodity. Importing countries could also consider stockpiling commodities at low prices.

McKinsey’s report focuses on savings rather than growth opportunities, but the trends are quite clear. Demand will decline over time, while new entrants (renewables) will take value out of the market as well. While fossil fuel companies will have to look at future operating models, they might have to consider alternative businesses altogether. Governments, however, have an interesting opportunity to align with this trend to maximize their own savings, preferably in aligned fashion with health objectives, Sustainable Development Goals or a larger public policy agenda.


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